This course "FinTech Security and Regulation (RegTech)" help you to understand RegTech and to become more confident and persuasive in your ability to analyze and make recommendations to executives within the finance industry regarding how to react to these changes, e.g. Regulations to cryptocurrencies like BitCoin & Initial Coin Offering (ICO). It presents the views of several professors from the top business school in Asia as well as perspectives from industry professionals.
You will learn about how FinTech and RegTech disrupt and transform finance industry, such as challenges in protecting data and security with digital forensics, risk management and corporate governance in banking industry in terms of Know Your Customer (KYC) and Anti Money Laundering (AML), and how governments in different countries take initiatives in FinTech and RegTech.

JM

Very informative and glueing. Professor's method of teaching was very lucid and to the point. Great value for those who want to understand the regulatory aspects that may impact Fintech going forward.

LZ

Sep 02, 2019

Filled StarFilled StarFilled StarFilled StarFilled Star

Really enjoy this course. It brings so much thoughts to me and I think I am starting to understand the basic logic of regulations and RegTech.

From the lesson

Global Trends and Government Initiatives in RegTech

In this module, learners will explore a variety of government initiatives related to FinTech & RegTech. Topics included open banking APIs in Europe, crypto-currency & ICO regulations, evolution of FinTech regulations in US & Europe, China regulations on FinTech, and regulatory issues in HK, Singapore & other jurisdictions.

Taught By

Theodore Henry King CLARK

Associate Professor

Transcript

Welcome back to our course on FinTech Security and Regulation. We're going to move now from the world of theory and talking about regulations in general in the US and Europe other countries to give concrete examples of Fintech regulations and how the world of FinTech is challenging regulators or challenging the way we think about regulation. Now, in the first place, let's talk about cryptocurrencies and ICOs and how they affect regulations, and then we'll get into some other things that apply on examples of challenges for regulators. One of the biggest challenges for regulators everywhere in the world is the world of cryptocurrencies and ICOs and how do you regulate it. One of the questions is, is a cryptocurrency like Bitcoin, a commodity, which is traded as a store of value like gold or oil? Or is it a security, like a stock or a bond? Or is it an instrument of a entity like a bank issuing a certificate of deposit or a CD? Is it a promissory note issued that would be subject to maybe banking regulations? Are you depositing money there and then taking it out? If you think of it like that, like a checking account, it should be under banking regulations. If you think of it as a digital gold, it should be under commodity regulation. If you think of it as a security of an organization issuing something to raise money to do something with, then it should be treated like a stock or bond. We're not sure how to regulate it. Now, if we think it's a currency, which normally currencies are issued by a government and there's a central bank behind them, and currencies go up or down in value, primarily because of differences in expectations about inflation or the future value of that currency. So if a central bank keeps their interest rates too low relative to other banks, then the currency with a low interest rate will decline in value. Because you will say, I'm going to lose money in that currency, it's going to be worth less, its interest rate is too low, its inflation is too high, therefore it is going to be worth less in the future because of inflation so i will devalue that currency. A currency that has interest rates too high, relative to inflation, becomes worth more and more and more and will rise in value. So you see Swiss Francs rising and value and some countries currencies declining in value because investors think, oh my, the inflation rate is going to exceed the interest rate that I'm getting on my currency or getting on my investments. If you want to raise the value of your currency, you raise your interest rate. This doesn't work for cryptocurrencies very well because there isn't an interest rate on a cryptocurrency. There is no central bank setting a rate. There's no regulation in this way. So these don't feel like traditional currencies. There is no central bank and there's no per se interest rate that people are paying. If there is an interest rate, it's an incredibly high rate that some exchanges, for example, will say, well, give us your bitcoins and we'll guarantee you 25 percent return a month. Some of those are fraud, and if they're fraud, then you say, well, that's a security issue and that's an exchange. That's trading securities and they're committing fraud on investors. Let's get consumer protection involved. Let's get securities regulations involved, but then you would have to say, wait a minute, is this a security? Are you exchange trading commodities? Or what the heck do we do for regulation? That's basically where regulators are to a large extent, is they're saying, we don't know. A recent US regulator comment on this is, we still got a lot of work to do to figure this out. We've got a lot of uncertainty. But what we do know is more and more they're starting to say bitcoin looks like a commodity. Some coins, cryptocurrencies, look like fraud and look like securities fraud and some exchanges appear to be securities exchanges. So we're starting to see consumer protection coming into play in some areas. We're starting to see commodities regulations coming into some areas. We're starting to see securities exchange is coming into play and we're not sure. It's almost on a currency by currency basis. So there's a lot of uncertainty out there about regulation and that can be important for the value of securities. If a regulator says, we're not going to allow trading in this, or we're going to tax it, or we're going to shut down some exchanges, all these things are not good for the liquidity or value of that cryptocurrency. So the currencies do care how they're regulated. They would like to be unregulated, but it's likely regulation over time will increase. In particular, there's a lot of focus on ICOs and a lot of focus particularly on many of the new ICOs, new coins coming out, which many regulators look at and say it looks like they're raising money to do something, like to run a business or for some other purposes. So they're either a deposit taking institution and you could argue that some cryptocurrencies like a Tether is sort of like a money market fraud. It's claiming to have assets that are one to one to back all of its investments, but they have no audited financials. They have no reporting to the Fed. They have no reporting to any other agencies. They're not complying with regulations for banking, but they say, we're secure as a bank, you can trust us. Well, Tether's got a problem. Now, it's not yet there and nobody shut them down, but it looks inconsistent with regulations and it's likely at some point US and other governments will say, we want to see your books, we want to see what's going on, we want you to verify or validate that you are a deposit taking institutions against some reserves or some protection for those instruments. Right now, they're existing in the Wild West and they don't need to report anything and people trust them. I'm not sure why, it makes me nervous to look at it, but their running outside the regulations at this time. They're a bank, essentially, without being required to comply with banking regulations and that looks risky. But they're a very popular currency for people to invest in. Others have come out with equivalent investments that are more secure and more protected. That would make me more comfortable, but they're not traded as much. So I like liquidity, but I also like protection. So there's a trade off there. Now, in terms of other regulations, some ICOs are coming out and looking more and more like a way to fund a business. Company's gotten smart and they've said, you know what, it's cheaper to do an ICO of something of anything. Throw out an ICO, you raise a bunch of money for anything. Like look at the market cap of a coin, a cryptocurrency like Dogecoin, depending on how you pronounce it, but spelled D-O-G-E-C-O-I-N. It was issued as a joke. It was meant to be a negative criticism about Bitcoin being silly and now it's got a huge market capitalization. It has limited ability to issue coins and one thing people love about cryptocurrencies is there's no government that can decide to just issue more currency. There are limits, there are rules. This tends to lead to stability. Of course, saying it tends to lead to stability in a market that is a roller coaster, seems a bit like an oxymoron. This is a bit troubling to regulators as well, what the heck is going on? So they're not sure what to make of some of these currencies, cryptocurrencies. But they're thinking some of them clearly look like commodities, like digital gold. Some of them look like securities. They look like they're being issued to fund a business or to raise money to do something. Some of them look like alternative deposits or some kind of security backing something or promised that and yet don't have audited books or protected financials that you would normally expect of a deposit taking institutions. So regulations have not yet caught up with innovation. Some of the peer-to-peer lending, looks more and more like banking. Some of the leaders in this industry have discovered that it's much easier to join with the bank or community bank, buy a bank or start a bank, than it is to fight regulators. So successful Fintech companies often comply with and become part of regulation like Eloan, buying or cooperating with the bank and Utah. That's a relatively small bank, but it's compliant with all banking regulations to issue many of their loans. Creative. Innovative. They're not alone. So we see a lot of examples of this, we see a lot of examples of challenges, issues, but increasing overtime, regulations applying more and more to various aspects of Fintech world. Thank you.

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